Banks compete on costs

Beware of transmission accounts marketed as best for low-income earners. Some of these accounts are “anything but cheap”.

This is one of the findings of the Solidarity Bank Charges Report for 2012, released last week.

“Transmission accounts such as Absa’s Flexi Account, Nedbank’s Transactor Plus and First National Bank’s (FNB) Smart account are often marketed as cheap accounts suited to clients with a low income,” the report says. But of the four transmission accounts analysed, “only Capitec’s Global One and FNB’s Smart accounts (not including the zero-monthly-fee option) are actually cheap”.

The Solidarity report – which compares the charges levied on personal bank accounts at Absa, Capitec, FNB, Nedbank and Standard Bank – found that Capitec is still the “cheapest” bank, followed by FNB, Absa, Standard Bank and Nedbank – in that order.

The report is the third annual report on bank charges by the Solidarity Research Institute (SRI), and for the third year in a row, Capitec’s Global One account has emerged as the least expensive of all bank accounts surveyed. The report says Capitec has managed to maintain its top position thanks to low charges and high interest on positive balances. Currently, Capitec pays interest of five percent on balances below R10 000 and 4.25 percent on balances exceeding R10 000.

“These [interest] rates are higher than those of many savings accounts at other banks,” the report says.

Across eight user profiles, the average bank charges on Capitec’s Global One account, without taking interest into account, are R55.50 a month, which is a 15.9-percent decrease from R66 in 2011. “By contrast, Nedbank’s cheapest account is its Savvy Electronic Account. This account’s average monthly bank charges are more than double those of Capitec and, in addition, this account’s charges have increased by 4.5 percent – from R107.79 to R112.61 between 2011 and 2012,” the report says.

According to the report, Capitec, FNB, Absa and Standard Bank all lowered their banking charges over the past year, while Nedbank’s charges increased marginally (see table: “Cheapest transactional bank accounts: 2011 and 2012”).

Although four of the five banks surveyed lowered their charges on “almost all accounts”, the Solidarity report highlights the effect of Absa and Standard Bank – “the most expensive banks in 2010 and 2011” – lowering their fees significantly. “They now offer stiff competition to FNB, previously the clear market leader with the popular ‘bundle’ type accounts.”

Paul Joubert, senior economics researcher at the SRI, attributes the lowering of bank charges to pressure from consumers, who are increasingly voting with their feet and switching banks.

The Solidarity report quotes the Ernst & Young 2012 Global Consumer Banking Survey, which revealed that 39 percent of South African bank clients had changed banks, and 13 percent indicated they were planning to. The percentages last year were 34 percent and 10 percent respectively. And the percentage of clients using more than one bank simultaneously has risen from 56 percent to 61 percent from 2011 to 2012.

Charl Nel, Capitec’s head of strategic communications, marketing and corporate affairs, says Capitec attracted more than 100 000 new clients a month over the past year. The bank now boasts 4.2 million clients.

Nel says Capitec’s offer has become a serious threat to the traditional role players. “The competitive environment will increase, but our services will remain aggressively priced in the future,” he says.

The Solidarity study compares the charges for personal transactional accounts only. In other words, it excludes products such as savings, investment and business accounts as well as accounts aimed at teenagers, students, young adults and pensioners.

“Broadly speaking, there are two types of transactional accounts: transmission accounts without an overdraft facility, and current accounts, which may offer an overdraft facility. Transmission accounts are generally marketed as ‘cheaper’ alternatives to people with a lower income. This type of account often is anything but cheap,” the report says.

The Global One transmission account from Capitec, the only type of account the bank offers, was the least expensive account in five out of eight user profiles (see “Solidarity’s methodology”, below).

“The average cost of a Capitec account on the eight profiles without penalty fees is R20.76 a month, with interest on positive balances included. This is R6.49 lower than last year, despite the fact that the interest rate on a positive balance dropped from 4.75 percent to 4.25 percent.

“If interest is not included in the calculation, the average cost on the same eight profiles would be R55.50 a month, R10.50 less than it was in 2011,” the report says.

In the following three profiles, FNB’s accounts proved marginally more cost-effective than Capitec’s Global One account:

* In an account with expenditure of R17 500 a month and 26 transactions, where the user incurs one penalty fee (and forgone interest is not included), FNB’s Smart Unlimited account would cost about R60 a month in bank charges, whereas Capitec’s account would cost about R70.

* In an account with expenditure of R31 000 a month and 29 transactions, where the client uses his or her own bank’s electronic channels and incurs no penalty fees, FNB’s Smart Cheque account and Gold and Platinum accounts would all cost only about R38 a month on the Pay-As-You-Use (Fee Saver) option. On this option, a minimum balance of R9 000 must be maintained at all times.

* In an account with expenditure of R31 000 a month and 29 transactions, where the client uses his or her own bank’s electronic channels and incurs one penalty, FNB’s Smart Account Unlimited would cost you about R19 less than a Capitec account. The FNB Smart Unlimited costs R60 a month and includes unlimited FNB ATM withdrawals, debit card purchases, and cash withdrawals at till points. It does not include withdrawals from other banks’ ATMs or transactions done inside a branch. Nor is it exempt from penalty fees.

SOLIDARITY’S METHODOLOGY

The Solidarity Bank Charges Report for 2012 is based on four user profiles and on various combinations of monthly transactions and two variations on each basic profile. The transactions or banking habits of the fictitious users generally correspond with the banks’ recommendations on how to reduce bank charges. These include:

* As few cash withdrawals as possible and no cash or cheque deposits;

* Fewer transactions of larger amounts rather than many low-value transactions; and

* As few physical visits to a branch as possible.

The user profiles are based on monthly expenditure ranging from R7 500 to R31 000 and 12 to 29 specific transactions a month. For example, in the profiles in which the monthly expenditure is R7 500, there are 11 transactions of R500 each and one transaction of R2 000.

The report notes that people who spend more than R31 000 a month are probably more concerned about additional benefits, such as a personal relationship with a bank manager, than bank charges. “People spending less than R7 500 a month are probably most interested in the lowest bank charges, and can use the expenditure level of R7 500 and the charges for 12 transactions a month as a guide.”

The report omitted comparing overdraft and credit card facilities because of the large number of options, combinations, interest-free periods and interest rates that apply. Garage cards were also omitted because many filling stations now accept cheque, debit and credit cards.

how your bank fares

The Solidarity Bank Charges Report of 2012 provides a commentary on the transactional accounts offered by the “big four” banks – Absa, First National Bank (FNB), Nedbank and Standard Bank – and Capitec, a relatively young bank. Below is a summary of each bank’s offerings, according to the report.

Capitec

* Choice: Capitec’s product offering is the simplest of all the banks considered in the comparison. Riaan Stassen, the bank’s chief executive, said last year: “I have yet to understand why a high-net-worth customer and a blue-collar customer should pay different charges for using the same facilities.” The bank therefore has only one transactional account, the Global One Account. In other words, clients are not segmented according to their level of income.

* Website: Charges are laid out clearly on the bank’s website.

* Full service: Capitec does not offer a credit card, overdraft facility or cheque book. It does offer internet banking and cellphone banking.

* Complexity: Capitec focuses strongly on making it as simple and paper-free as possible for you to do your banking. The bank’s Global One account is suitable for people who do not need a cheque book or overdraft facility and who don’t mind using an external provider’s credit card. On the account, you pay a low monthly administration fee of R4.50, and are charged per transaction. Clients who maintain positive balances in their accounts are rewarded with interest, which can potentially cover or exceed all bank fees on the account. This year, Capitec lowered some fees and increased others. The net effect of these changes was lower costs compared with 2011.

first national bank

* Choice: FNB offers numerous accounts and options with different fee structures. Clients are segmented according to their income level. For example, to open a Platinum account you must have an annual income of more than R350 000.

* Website: FNB’s website is fairly user-friendly, the report says, with most of the information on each account displayed on one page. Bank charges are provided in a separate document, which makes comparing accounts and fees more difficult than in the past. The bank’s fee calculator is “buried deep in the website and whether an ordinary client would ever find it is doubtful”.

* Full service: FNB offers comprehensive internet, telephone and cellphone banking services, and on most accounts you can get an overdraft facility, credit card and cheque book. Some accounts aimed at people with a lower income exclude some of these options.

* Complexity: FNB offers a pay-as-you-use option, where you pay a relatively low monthly fee but each transaction incurs its own fee; the Fee Saver option, where an unlimited number of qualifying transactions are free if you maintain a minimum balance (R9 000 on most accounts) and are prepared to forgo interest; and an unlimited option, for which a relatively high fixed fee is charged, but an unlimited number of qualifying transactions can be done free of charge.

absa

* Choice: Although Absa simplified its product range this year, according to a brochure on the bank’s website, it offers 13 types of account, many of which have more than one fee structure. Clients are segmented according to income level.

* Website: Absa’s website is “fairly user-friendly”, but comparing accounts and sourcing all relevant information on a specific account can be difficult, because the site has so many pages and not all information about a specific account is necessarily summarised on one page. The website has a calculator for calculating fees, but it’s not easy to find and it is not very user-friendly, and it has not been updated recently, the report says.

* Full service: Absa offers comprehensive internet, telephone and cellphone banking, and on most accounts, you can get an overdraft facility, credit card and cheque book.

* Complexity: This year, Absa has made far-reaching changes to its accounts and charges. Whereas in the past, a great many options existed for each account, Absa’s present accounts are basically split into two types: the pay-as-you-transact option, for which a fee is paid for each transaction; and the new value-bundle options, where a fixed monthly fee is charged and most transactions do not incur additional fees. These changes have tended to lower banking costs for most clients and have made for a more user-friendly experience. “As far as simplicity and clarity of bank charges are concerned, the bank is moving in the right direction,” the report says.

standard bank

* Choice: This year, Standard Bank reduced the number of accounts it offers and simplified them, making analysis of the bank’s charges easier than before. Clients are segmented according to their level of income.

* Website: Standard Bank does not have a very good website, the report says. Menus and page layouts are often confusing, and much of the information on the website “seems to be outdated”. The report notes there are a number of “dead” links on the site.

* Full service: The bank offers comprehensive internet, telephone and cellphone banking services, and on most accounts you can get an overdraft facility, credit card and cheque book. Cheaper accounts exclude some of these options.

* Complexity: Standard Bank offers a variety of options on most current accounts: the pay-as-you-transact option, where a relatively low monthly fee is paid but each transaction incurs an additional fee; the fixed fee or Plus option, where a relatively high fixed fee is charged in exchange for a certain number of free transactions; and the rebate option, where charges for certain transactions are reversed if certain minimum balances are kept in the account at all times and you are prepared to forgo interest on the balance. The rebate option works on a sliding scale, with the rebate increasing as the minimum balance increases. In most cases, your rebate would be more than the interest you would earn.

nedbank

* Choice: Nedbank offers a smaller range of accounts and options than the other members of the big four, which makes the bank’s product offering easier to understand. Nor does Nedbank segment its clients by income level to the same extent as its competitors. The bank does, however, have a private banking department for high-income clients.

* Website: Nedbank’s website is fairly user-friendly and includes a useful tool to calculate bank charges, although it does not include all possible fees, the report says.

* Complexity: Nedbank offers three types of transactional account: the basic option, which comes without extras such as credit cards and overdraft facilities; the bundle options, where a fixed fee is paid for an unlimited number of free qualifying transactions (although fees are still levied on some transactions); and the standard current account, where fees are charged for each transaction.